Financial News profiles the main financial centres in the region in this in-depth guide.

• Kuwait

Government: A hereditary emirate with a combined presidential and parliamentary system. Women were granted full voting rights in 2005

Capital: Kuwait City

Population: 2.8 million (2006 figures)

Total GDP*: $80.8bn

Sovereign wealth fund: Kuwait Investment Authority (estimated at $200bn), formed in London as the Kuwait Investment Board in 1953, one of the first SWFs. Invested $3bn in Citigroup and $2bn in Merrill Lynch in January, as well as buying a stake in credit card company Visa.

The black fumes from burning oil wells were some of the most enduring images of Iraq’s invasion of Kuwait in August 1991. Following the death of hundreds of soldiers and civilians and the looting of the country’s shops and museums for seven months, the US-led United Nations Operation Desert Storm rescued Kuwait and Iraq retreated, leaving behind a devastated country. Seventeen years later, Kuwait’s oil industry has recovered from the destruction and the country is once again Opec’s third-biggest oil producer, with about 101 billion barrels of oil in reserve, including half the five billion barrels in the neutral zone that Kuwait shares with Saudi Arabia.

Kuwait is so far the only Gulf country to depeg its currency from the US dollar, in an attempt to avoid the soaring inflation that has affected Saudi Arabia and other Middle Eastern nations. The six-member Gulf Co-operation Council has committed to monetary union by 2010, with a common currency pegged to a basket of international currencies.
In the 1990s, Kuwait launched a rapid privatisation programme, which continues, with state-owned Kuwait Airways expected to be sold in the next 10 months.

The International Monetary Fund said in a 2004 report that the banking sector was the core of Kuwait’s financial system, followed by securities and a small insurance sector. It said banking regulation and supervision were “broadly in line with international standards” but that development was needed in the “legal and regulatory frameworks for other parts of the financial system”. This year, the Kuwait Stock Exchange was the second-largest in the Gulf by total market capitalisation at $233bn, with more than 240 listings.

In April, financial services group Global Investment House, listed $1bn worth of global depositary receipts on the London Stock Exchange, becoming the first Kuwaiti company to do so. It will use the proceeds of the share sale to fund acquisitions of asset managers and banks in the Gulf.

Kuwait’s rulers and property developer Mazaya Holdings are reportedly planning a financial and commercial centre, to be called Neira.

Saudi Arabia is one of the richest, but also one of the most conservative countries in the world – women are forced to completely cover themselves in public, are barred from driving and need permission to travel abroad.

While sky-high oil prices ensure Saudi Arabia, the world’s largest oil exporter, becomes richer every day, it is having to find a solution for the problem of a large, young, unemployed population. This is partly due to the high number of foreigners working in the country, but blame also lies with an inadequate education system.

In the financial services sector, the country has a healthy banking sector but its appeal to foreign institutions operating in the country has been limited. A source said: “Riyadh just doesn’t offer the facilities – whether it be buildings suitable to multinational operations, or the infrastructure around it, including entertainment.”

The kingdom is aware of this perception, and two years ago announced the establishment of the King Abdullah Financial District, a 1.6 million sq m development to be built near Riyadh’s business centre. At launch it was vaunted as part of a “drive to expand the economy, create employment opportunities for its youthful population and function as a catalyst to attract foreign investment, global trade, commerce and industry”. Since then little has happened. According to a source close to the developers, the delay has in part been caused by a lack of suitable leadership.

The Tadawul, the Saudi stock exchange, was the world’s second-busiest market for initial public offerings in the first five months of this year, surpassing London, according to financial information provider Thomson Reuters, largely due to the flotation of Al Inma Bank, which raised $2.8bn in April – a Saudi record. The Tadawul’s electronic trading system, introduced in 2001, was one of the first electronic clearing and settlement systems.

The country benefits from religious tourism, with millions of faithful making the Hajj, or pilgrimage, to Mecca every year.

• Bahrain

Government: Bahrain is a constitutional hereditary monarchy led by the King Hamad bin Isa Al Khalifa

Capital: Manama

Population: 656,397 (includes 228,424 non-nationals – July 2002 est.)

Total GDP*: $16bn (€10.3bn)

Sovereign wealth fund: Bahrain Mumtalakat Holding Company ($10bn). The fund took a 30% stake in the parent of Formula 1 motor racing outfit McLaren in January last year. The move made it the second-largest shareholder in the UK company, behind German carmaker Daimler. This month it confirmed it is hiring more staff to look at foreign acquisitions.

At weekends, Saudis and expats make a beeline for the drinking holes and more liberal social atmosphere of the 32-island archipelago of Bahrain.

Bahrain has another distinction: it was the first to take over the mantle of financial centre in the Middle East after the collapse of Beirut in the Lebanese civil war that began in 1975.

The relatively small size of its oil reserves forced Bahrain to diversify early on, meaning that other sectors have become increasingly important, to the economy in preparation for when its oilfields are predicted to run dry by 2010. To better compete with Dubai, Bahrain began work on the Bahrain Financial Harbour, a $3bn, 380,000 square metre waterfront complex on the outskirts of Manama. The development will provide a high-tech environment for investment bankers, asset managers and insurance specialists.

The Bahrain Stock Exchange, Dexia Private Bank of Switzerland and the Bank of Asia, Singapore’s first Islamic bank that was founded last year with the support of the Gulf Co-operation Council, have all signed leases in the new complex.
The Central Bank of Bahrain said in a report that 2,200 new jobs had been added in the kingdom’s financial services sector last year, a 22.6% rise over the previous year.

About 150 local and international financial institutions operate out of Bahrain, with combined assets of $245.8bn as of the end of last year, according to daily newspaper Bahrain Tribune.

At the beginning of the year, India’s Bank of Baroda started operating in the country, and the central bank has granted operating licences to India’s HDFC Bank and French group BNP Paribas, which intends to start a fund management business in the kingdom.

A group of Gulf-based banks and investors this month signalled their intention to launch an Islamic investment bank, with the putative name of Ummar Bank and $11bn in paid-up capital.

• Qatar

Government: Sheikh Hamad bin Khalifa Al-Thani became the Emir of the State of Qatar after deposing his father in 1995.

Population: According to the 2004 census, Qatar’s population reached 742,883, with a further estimated 400,000 expats.

According to reports, the state plans to cut its expatriate working population from 88% at present to 50% by 2025

Qatar, one of the world’s fastest-growing economies, spent $2.8bn on facilities for the 2006 Asian Games in Doha. The event was so successful that the country was a contender for the 2016 Olympic Games.

With its wealth based on its oil (15 billion barrels in reserve, according to Opec) and gas reserves, the Government has committed itself to a $130bn investment in projects, including financial services, over the next five to seven years.
The Qatar Investment Authority bought a 15% stake in the London Stock Exchange last September.

Most of the financial community is based in the Qatar Financial Centre in Doha. Qatar will be the first Gulf country to have a single financial regulator – the Qatar Financial Centre Regulatory Authority – after various bodies merge this year. QFCRA chairman Phillip Thorpe said: “The launch of a single integrated financial regulator in Qatar will encourage moves towards much-needed capital market reform in the region.”

Qatar has significant infrastructure projects, many associated with liquid natural gas, of which Qatar is one of the world’s largest suppliers. Abroad, LBQ Limited, a consortium of Qatari state-backed investors, is putting £2bn (€2.5bn) into the regeneration of London Bridge, which includes London Bridge Tower, better known as the Shard of Glass.

• United Arab Emirates

Government: Sheikh Khalifa bin Zayed Al Nahyan, president of the United Arab Emirates and head of the Supreme Council of Rulers.The Supreme Council is made up of the rulers of the Seven Emirates, including Emir Mohammed bin Rashid Al Maktoum of Dubai.

Abu Dhabi is the richest city in the world – its 420,000 citizens sit on one-tenth of the planet’s oil and have almost $1 trillion invested abroad, meaning each person is worth an average of $17m, according to Fortune Magazine.

Considering this staggering wealth and abundance of oil – it claims 92 million barrels in reserve – it has been sidelined in the financial services stakes by the marketing machine of fellow emirate Dubai (4 billion barrels).

In terms of stock market performance, the Abu Dhabi Securities Exchange has 64 listed companies with a total market capitalisation of nearly $130bn, including developer Aldar Properties and telecoms company Etisalat.

This month, the Abu Dhabi Investment Company, which is jointly owned by Abu Dhabi Investment Authority and the National Bank of Abu Dhabi and invests in private equity, real estate, asset management and infrastructure, negotiated a deal to buy 75% of New York’s landmark Art Deco Chrysler building for $800m.

• Dubai

Dubai claims the world’s tallest building – Burj Dubai, due to open next year and whose height is estimated at about 820m – as well as the world’s tallest hotel in the Burj Al Arab at 321m, the largest man-made islands, and the first indoor ski slope in the desert.

But beyond this ostentatious display of superlatives, Dubai is a financial centre to be reckoned with. According to this year’s Global Financial Centre Index, a yearly survey conducted on behalf of the City of London, Dubai is among the top three cities identified as becoming “significantly more important over the next two to three years”, alongside Shanghai and Singapore.

Most banks, asset managers and insurance companies, as well as the Dubai International Financial Exchange, are based in the Dubai International Financial Centre. The 110-acre complex is a free zone, which allows it to attract foreign investors and companies. Incentives range from no tax on company profits and personal income to a commitment to foreign ownership rights and a solid regulatory environment, under the control of the Dubai Financial Services Authority.

Borse Dubai, the Government-owned holding company for the DIFX and Dubai Financial Market, holds a 20% stake in the London Stock Exchange.

However, the DIFX, in which Nasdaq OMX has a 33.3% stake, has struggled to attract listings with only two flotations in the past six months. These were the $5bn flotation of port operator DP World last November, whose share price has since dropped by more than 30%, and the initial public offering of Dubai-based interiors company Depa in April. In total, only 13 companies are listed, compared with 57 on the Dubai Financial Market and 64 on the Abu Dhabi Securities Exchange.

Sovereign wealth fund: State General Reserve fund (estimated at $10bn)

Bourse: Muscat Securities Exchange – Market capitalisation: $29bn

The landscape of Muscat sets it apart from the other Gulf states, with wadis, mountains, beaches and a picturesque capital. It has turned Oman into a desirable tourist destination with scope for expansion.

Oil revenues are the cornerstone of the economy, but its future growth is likely to draw on gas reserves and other diversification from oil, according to a report by consultancy PwC.

Oman is open to foreign investment, allowing up to 70% of a company to be owned by non-Omanis. The Government has outlined initiatives to modernise the economy and privatise utilities, according to PwC.

Oman is home to a handful of foreign banks and asset managers. The country’s focus is on construction and infrastructure, telecoms, tourism and real estate. As part of the country’s diversification, the $2.4bn Sohar Aluminium company produced its first metal this month – the smelter was built in three years and within budget.

Oman’s State General Reserve fund has participated in several real estate developments, including the Wave Seafront Resort in Oman, which cost more than $800m. It is involved in Heron Tower, the office development in London’s Bishopsgate.

A total of 209 companies are listed on Muscat Securities Exchange – including Bank Muscat, the sultanate’s biggest bank with assets of about $12bn.